Financial concerns return as credit crunch writeoffs increase
A bout of profit taking hit Wall Street as worries about the financial sector resurfaced with JP Morgan down over 9% after it said around $1.5bn in mortgage backed securities could be written off in Q3. Bank of America and Citigroup both lost about 7% each, while Wachovia fell sharply after it revised its quarterly deficit downward to account for the costs of a possible legal settlement. Elsewhere in the sector, UBS unveiled plans to separate its three business divisions after reporting a fourth straight quarterly loss on larger than expected writedowns of $5.1bn. In other news, TJX reported a rise in quarterly profit as weaker consumer confidence sent shoppers flocking to the discount fashion and homeware retailer. On the economic front, the US trade deficit narrowed to a less than expected $56.8bn in June thanks to a weaker dollar which helped boost exports. This compared to a revised $59.2bn shortfall in May, according to data published by the Commerce Department.
In London, shares edged back on a quieter day as downbeat miners and banking stocks offset good news elsewhere.
ENRC and
Kazakhmys were among the mining stocks following metals prices lower.
Standard Chartered was a faller after Citigroup downgraded it from 'hold' to 'sell'.
Thomson Reuters fell after it reported an 11% rise in revenue for the quarter to $3.4bn, less than the 12% increase seen during the previous three-month period. At the top end,
ITV led the risers, helped by continued bid talk, and InterContinental Hotels also rose, helped by a 29% rise in H1 operating profits to $284m, in line with forecasts. Retailers were under pressure again after retail sales fell again in July, making it four down months out of five now, according to the British Retail Consortium. A separate report revealed that inflation was more than double the government’s 2% target after soaring to 4.4% last month on further increases in the cost of food and high fuel prices.
Technically, we have now seen sharp rallies on the back of the smart money which has recently been buying into the major equity markets, so the short term trend remains bullish. On the Dow Jones Index, we are now around the important 11700 area which has repelled it a couple of times, so it could be a more mixed week. The Footsie is lagging and this is because of sector variance, with weakness in oil and mining stocks impacting with their heavy weighting, so index players might not do as well as pure stock pickers, for which there are opportunities in both directions.
Overall, we are still bullish on equities for a rally of a few weeks, but the bigger picture suggests more downside to come.The Bank of England will downgrade its forecast for growth in the British economy and warn that inflation is set to continue to rise, reports the Independent. The FT adds that UK inflation rose to 4.4% in July, its highest since the early 1990s and more than double the government’s target, as economists predicted a further rise to 5% in the autumn.
Senior executives at UBS knew some of their bankers had acted in a way that meant they risked breaching US securities laws at least a year before the US inquiries began, a letter seen by the Financial Times shows.
JP Morgan Chase and Goldman Sachs, the two Wall Street banks seen as least affected by the credit crisis, suffered setbacks yesterday. JPM admitted it took a $1.5bn writedown on mortgage-backed assets in July, raising questions about its financial performance in Q3. GS was hit by a number of profit downgrades on fears that it could be heading for one of its worst quarters since going public in 1999, reports the Telegraph.
Commonwealth Bank of Australia states that it is pulling out of talks with Royal Bank of Scotland to buy ABN AMRO Australia.
Results: Thomas Cook is on track to meet expectations for the current financial year, with trading strong and early winter indications ahead of last year, and states that it is 92% hedged for oil for 2008-09.
Interserve announces H1 pre-tax profit of £33.7m and stays confident that it is well placed to maintain its progress.
Micro Focus reports a solid Q1 and confirms its targets for double digit organic revenue growth.
British Energy reports adjusted EBITDA of £129m, from £253m last year and it is continuing discussions in respect of a potential transaction.
Balfour Beatty announces H1 pre-tax profit of £95m from £76m and anticipates that trading and order intake performance will stay strong through H2.
The full Morning Rundown report can be read
here
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